Despite concern about the negative impacts of globalisation on the economies of OECD regions, notably the loss of manufacturing jobs and enterprise relocation, this report presents evidence that region-specific advantages – embedded in specialised firms, skilled labour and innovation capacity – remain a significant source of productivity gain for firms, even for the largest multinational enterprises. This seems to contradict the hypothesis that globalisation reduces the importance of geographical proximity in business.

Economic geography in an era of global competition involves a paradox. It is widely recognised that changes in technology and competition have altered many of the traditional rules that determine location of economic activity, making it possible for firms to access the inputs and knowledge that they need from anywhere across the globe. Yet specialisation and concentration remain striking features of regional economies in the OECD. For example, many of the leading firms in "new economy" industries have tended to cluster together.

This report argues that some long-term trends will over time change how economic activities are distributed both within countries and across the globe. Some of the key drivers of this process include:

Extension of offshoring of manufacturing from industries such as textiles and ICT in which Asia has already become the “global factory” to high-tech industries and to new segments of the production process.

Fundamental changes in corporate strategies, giving rise to more open and networked corporate innovation systems with strong region-level and global dimensions.

Innovation offshoring leading to the emergence of R&D clusters in non-OECD countries.

There is evidence that a new geography of production is emerging, based around both old and new regional hubs in OECD and non-OECD countries. Some of the new hubs in non-OECD countries are attracting increasingly high value-added production and services.

These trends have important consequences for policy makers. These relate both to how to attract and retain key investments in their current locations, and how to build on existing locational advantages. In response, national and regional governments in OECD countries are looking for ways to ensure that regions maintain a competitive edge in industries that generate wealth and jobs.

This report looks at how different regions specialised in one of three major global industries (auto, biopharma and ICT) are responding to these challenges and the strategies they have adopted to support existing competitive advantages and to transform their assets to develop new competitive strengths.

A principal message from this research is that OECD regions can compete in key industries on the basis of region-specific assets, even in industries that are characterized by intense international competition.

Regions emphasised that their main comparative advantage was the innovativeness of their enterprise base. Firms are under pressure to develop innovative products and assimilate new technologies rapidly. Given that even large firms cannot do this effectively in isolation, the system of innovation is becoming less vertical and more open.

This study suggests that there are new opportunities for suppliers to access new customers and break out of vertical systems, thereby offering greater incentives for SMEs to innovate. This is one of the key domains for public policy in the regions studied.

Open innovation is becoming an important tool for large and small firms as they look for new ways to share risk and develop complex products and processes. The links between R&D institutions and firms could become more important as the process of innovation becomes less internal. Here, proximity remains an important asset. Firms underlined the positive impact of region-level interaction relating to innovation.

However, global production networks are also important. R&D is increasingly internationalised and maintaining innovation networks across different countries is technically feasible. Regions are looking for ways to help local firms access global partners and so the regional innovation system concept needs to be also an outward looking strategy.

Contents

Part 1. MAIN REPORT

Chapter 1. The Reshaping of Regional Economies

Rapid changes in economic structures are causing concern among both policy makers and citizens in OECD countries. To understand how these trends are affecting regions, this chapter explores the dynamics of the manufacturing sector at the regional level and the shift, visible in some places, towards higher value manufacturing and non-manufacturing activities.

Chapter 2. Globalisation and the Spatial Reorganisation of Production

The drivers of change in regional economic structures are assumed to be linked to globalisation, notably the reorganisation of production. This chapter outlines the main drivers of globalisation and explores the role of multi-national firms in this process and what this has meant for particular regions. It then reviews the changing geography of production and uses industry examples to better understand the impact on regions of processes such as outsourcing and offshoring, including offshoring of innovation.

Chapter 3. How Can OECD Regions Compete?

Given the changes in regional economies due to globalisation, the reorganisation of production and the nature of innovation, how should regions respond? Regions, not nations, appear increasingly as the nodes in global networks. Regions are also the scale at which meaningful interaction among firms, people and knowledge generators leads to innovation. This chapter discusses the opportunities that the reorganisation of production seems to offer and presents examples of how regions have worked to seize these opportunities.

Chapter 4. Clear Strategy, Good Governance

This chapter explores the importance of governance arrangements in helping regions react to changes in the global economy. In some cases, mobilisation has been a response to crisis; in others a more structured mechanism for economic policy formulation is used. In either case the evidence base necessary for decision-making stands out as a crucial issue, as does the ability of public and private sector actors to find consensus around a forward-looking and realistic response.

Part 2. SUMMARIES OF REGION-SECTOR CASE STUDIES

Chapter 5. Regional Case Studies in the Automotive Sector

This chapter looks at the evolution of the automotive industry and the impacts that changes in the industry are having on four car producing regions,. In each case, the regions are struggling with the impact of restructuring of the global car industry but also striving to build on the technological and innovative capacities that the regions have acquired over time as leaders in a dynamic technology-driven industry.

Chapter 6. Regional Case Studies in the Biopharmaceuticals Sector

This chapter looks at the evolution of the biopharmaceuticals industry and the impacts that changes in the structure of the industry are having on four regions specialised in drug production and/or biotechnology. In each case, the regions are struggling with the impact of restructuring of the global pharmaceuticals industry but also striving to build on the R&D strengths and innovative capacities that the regions have acquired over time as leaders in a dynamic technology-driven industry.

Chapter 7. Regional Case Studies in the ICT Sector

This chapter looks at the evolution of the mobile ICT industry and the impacts that changes in the structure of the industry are having on four regions specialised in ICT. In each case, the regions are struggling with the impact of restructuring of the global ICT industry, particularly the after-effects of the ICT “bubble”. But the regions are also striving to build on the R&D strengths and innovative capacities that the regions have acquired over time as leaders in a dynamic technology-driven industry in order to maintain a competitive edge.

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